Jefferies said a sustained strong performance by the petrochemical vertixal will improve the likelihood of O2C business stake sale in FY22 and may lead to a reversal of the 40 per cent underperformance in the Nifty pack.
The oil-to-telecom company is led by the richest Indian, Mukesh Ambani, whose wealth has eroded by $491 million to $76.2 billion this year, as per the Bloomberg Billionaire Index. Shares of Reliance Industries were flat year till Thursday, before Friday’s rally, against an 8 per cent rise for the BSE Sensex year to date.
The second richest Indian, Gautam
, has added $34.5 billion to his fortunes during the same period.
The foreign brokerage has set the base target of the RIL stock at Rs 2,580 level and suggested an upside scenario target of Rs 3,150, which would mean a 59 per cent upside over Thursday’s closing price.
Jefferies said polymer spread for the oil major is at decade-highs due to strong downstream demand. Polyester chain spreads, which are well below decade highs due to large capacity addition, are also recovering gradually, the foreign brokerage said. Polymers comprise of 45 per cent of its petchem portfolio.
A spread is a difference between the price of raw material and the price of the finished product.
“Petchem Ebitda could be 50 per cent ahead of Jefferies estimates if current spreads sustain in FY22E. This could drive 14 per cent upside to our consolidated Ebitda estimates. Sustained strong performance increases the likelihood of the O2C transaction, in our view,” it said.
Jefferies said China is projected to add 20 per cent of global ethylene capacity over 2020-2023 but the capacity additions in polypropylene look more restrained at 7 per cent of global capacity. ”
Sustained demand strength on fiscal support in major economies, commissioning delays in new projects, and vaccination penetration should support polymer margins in FY22,” the brokerage said.
In case of polyester and intermediates, spreads across the polyester chain shrunk 40 per cent pre-Covid and have been slow to recover from lows owing to overcapacity.
At the current stock price, valuing the Energy business at long-term average multiples, we are left with Rs 1,150 per share as imputed value of RIL’s stake in Jio and Retail. This is in line with the valuation offered by PE funds that bought stakes in Jio and Retail in Q1FY21. In our view, sustained strong petrochemical performance improves the likelihood of O2C stake sale in FY22. This could lead to a reversal of the 40 per cent Nifty underperformance,” it said.
